Inheritance Tax Explained: According to Sam Pitroda, chairman of the Indian Overseas Congress, the discussion surrounding the implementation of an “inheritance tax” in India has intensified.
Pitroda compared the lack of an inheritance tax in India to that in countries like the United States.
An inheritance tax ensures a fair redistribution of wealth, so people ought to leave the general public a portion of their wealth.
Pitroda’s comments sparked contrasting opinions, with Prime Minister Modi criticising it. PM Modi equated it to an encroachment on the hard-earned assets of the middle class.
An old video of Nikhil Kamath, co-founder of Zerodha, has surfaced in which he advocated for mechanisms to redistribute wealth across generations while speaking to a news outlet.
Inheritance Tax Explained: So, what is inheritance tax?
Following the death of the donor, the beneficiary is responsible for paying an estate duty or inheritance tax on inherited immovable and movable assets.
When an individual dies, their assets are transferred to their legal heirs, usually children, grandchildren, or wards.
In many cases, inherited properties serve as a source of income, such as rent or interest.
Consequently, the new owner is responsible for declaring and paying taxes on this income.
Calculation
Different countries calculate inheritance taxes differently.
Tax rates depend on the value of the inheritance and the relationship between the deceased and the beneficiary.
Depending on the relationship between the deceased and the beneficiary, inheritance taxes are computed on a sliding scale.
The United States, for example, exempts surviving spouses from inheritance taxes.
Global practice
The United States and the United Kingdom are key jurisdictions where inheritance tax is charged.
China does not have inheritance tax provisions.
Context in India
Until 1985, estate duty was prevalent in India, with rates reaching 85% in the mid-1980s.
Additionally, in 1998, India abolished the gift tax and the wealth tax.
Implications for income taxes
India does not have a specific inheritance tax, but inherited assets can still be taxed.
The new owner of an inherited property may generate income, such as rent or interest, which is subject to income tax.
Inheritance assets can still affect income tax liabilities even if there is no direct inheritance tax.
Also Read: Inheritance tax set for a comeback after 35 years
